Rights of Savers Bill - Standing Committee C

[Mr. Joe Benton in the Chair]

Rights of Savers Bill

Joe Benton: I remind the Committee that there is a money resolution in connection with the Bill. Copies are available in the room. It is hoped that the Committee will conclude consideration of the Bill at this sitting. If that should not prove possible, I shall invite Sir Malcolm Rifkind to move a sittings motion specifying the date and time of our next meeting before we adjourn. In the event of a second sitting, I do not intend to call starred amendments.

Clause 1 - Meaning of “Savings and Retirement Account (SaRA) schemes”

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Thank you, Mr. Benton. This is an unusual Bill in two respects. First, it received the unanimous endorsement of the House on Second Reading. The House did not divide, and the Minister was kind enough to pay several compliments on the Bill’s content. Therefore, the Bill has reached the Committee with the unadulterated enthusiasm of the House as a whole.
I said, however, that the Bill was unusual in two respects, the second of which is that the Minister has tabled amendments that, without exception, without further debate or any question of amendment, will delete every clause. He may suggest that that is standard practice, but I have taken some advice on the matter. I am advised that those who know such things can remember only two precedents in the past 100 years when the Government of the day sought, without deliberation or consideration, to negative every clause of a Bill that received unopposed Second Reading.

Stephen Timms: Will the right hon. and learned Gentleman give way?

Malcolm Rifkind: Yes, I am happy to give way. The Minister probably wants to remind me of some other precedent.

Stephen Timms: Will the right hon. and learned Gentleman confirm that the two precedents are Sir Frederick Banbury’s 1955 transport amendment Bill and Mr. Bevins’s 1919 trade disputes Bill? If the right hon. and learned Gentleman is able to shed any more light on those precedents, the Committee would be interested.

Malcolm Rifkind: I find it interesting that the Minister is so nervous about the procedure that he proposes that, unlike me, he has taken the trouble to find out which were the two Bills, no doubt hoping that it would give him some sense of relief. I assumed that he would say that the wicked Thatcher Government or the Major Government had done some such thing. He has had to go back to 1919 and 1955. Is not he ashamed of himself for being the third example in 100 years of such nefarious conduct?
The Minister’s approach is also extraordinary because, when he was good enough to reply to the Second Reading debate, he began by stating that it
“has been much more enjoyable than I anticipated”.
God knows what would have happened if he had not enjoyed Second Reading. It is difficult to imagine what his reaction would have been in such circumstances. He also stated:
“I welcome the opportunity today to pursue that debate and to help build towards a consensus.” —[Official Report, 28 October 2005; Vol. 438, c. 576-77.]
Is this the Minister’s idea of building towards a consensus? Is his idea of continuing a debate to negative each clause without further consideration? I have no doubt that he will respond in his own charming and inimitable fashion to the points that I have raised.
Clause 1 lays out the basis of the new saving and retirement account proposal, which is one of the major elements of the Bill. It provides for a major new savings scheme, and the objective is to create the flexibility of an individual savings account with the kind of pension security that would normally be available from a pension product. At the time when the stakeholder legislation was introduced, which is the Government’s great claim in this field, it was estimated that approximately 5 million people with earnings of between £10,000 and £20,000 a year were not in an occupational pension scheme. Many have suggested that much of the stakeholder money has simply been transferred elsewhere. Stakeholder pensions have been bogus and a failure for the Government, even though they still try to deny it.
I find myself agreeing with the conclusions of the July 2004 Treasury Committee report, which stated that for the purpose of restoring confidence in long-term savings—a confidence largely destroyed by the Government’s own actions—the Government should consider introducing more flexible access to pensions as a means of making savings more attractive. That is exactly what the Bill does. The Minister acknowledged as much on Second Reading, yet all he can do is seek to delete it without further debate when it comes before the Committee.
The savings and retirement account will also be particularly attractive to the low-paid and to women. With its proposed low administration costs, the charges are not disproportionately high on low levels of savings. The flexibility of transferability makes it particularly attractive to those who may change jobs or, as for women, take career breaks to bring up children. It is also in theory possible for one-off contributions to be made to such an account, which would be beneficial to those on intermittent incomes.
I will briefly spell out the contents of the clause. It sets out the meaning and the conditions that a savings and retirement account scheme must meet. Many of the conditions are actually set out in clauses 2 to 6. Clause 1 provides that, as with a stakeholder scheme, the scheme has the option to be put into trust. However, that is not a necessity. Clearly, the administrative costs would be reduced if that option were not taken up.
To answer a question that has been raised, the provision of a properly regulated wrapper and a scheme administrator will provide the security required. Advice will be available on the underlying investments. The investments, by their nature, will be easier to advise on and to manage.
Subsection (8) provides that members of such a scheme are unrestricted in the contributions that they make to the scheme,
“subject to such minimum contribution levels and other restrictions as may be prescribed”.
In theory, there will be no maximum, although the lifetime allowance of £1.5m coming in at A-day will in practice provide an effective cap. However, as we are gearing ourselves towards low-income savers, that figure clearly is not particularly relevant.
Subsection (9) permits a scheme to accept transfer payments in respect of a member’s rights under other pension schemes and annuities, provided that such transfers do not prevent the account from being eligible for tax relief under current legislation. I believe that this proposal will be particularly beneficial to those who have a large number of different policies—something that is also dealt with later in the Bill. There will need to be a valuation of funds to be transferred by the scheme actuary or administrator. The investor will then need to make a decision—much as is already the case—as to the financial benefits or otherwise of the course of action.
Subsection (10) provides that the account shall benefit from tax relief that other pensions schemes enjoy, as set out by the Pension Schemes Act 1993. The Committee may decide to amend the scheme, and I will be happy to respond constructively to any serious proposals for amendments.
Subsection (11) recognises the savings and retirement account as a suitable alternative pension saving vehicle under the law.
To sum up the primary matters covered by the clause, we are dealing with a problem that the Government and the Turner commission have recognised and which needs a novel and flexible approach that builds on the success of ISAs. I do not think that there is any opposition to that. I would be happy to see constructive proposals to improve the scheme further. The House approved the Bill in principle by giving it an unopposed Second Reading. The Minister should think very hard if he believes in consensus and in working with others who have constructive proposals. If he were simply to turn down the proposal on the basis that it was not invented by his Government, party or Department, that would be  a pretty clear marker of the rather inadequate and unimpressive attitude of Ministers to such a crucial policy area.

Nigel Waterson: It is a pleasure, as always, to serve under your wise chairmanship, Mr. Benton. I do not wish to detain the Committee long because I hope that, with a fair wind and co-operation on both sides, we can get through all the amendments today and see the Bill reported to the House. I congratulate my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind), as I did on Second Reading, on his good fortune in coming high in the ballot for private Members’ Bills and on his sagacity in choosing this subject and putting together an important and thought-provoking Bill. It has my party’s full support, as he knows. Indeed, in the absence of any solution to the pensions crisis from the Government, it behoves the official Opposition to come up with the solutions, or some of them, to the ever-worsening situation.
Like my right hon. and learned Friend, I was struck by the honeyed words of the Minister on Second Reading, when he said:
“I welcome the opportunity today to pursue that debate and to help build towards a consensus.”—[Official Report, 28 October 2005; Vol. 438, c. 577.]
Consensus is the buzz word in pensions at the moment. Sadly, as we do not seem to have consensus within the Government, it is a little rich for Ministers to demand it beyond the Government. Despite the fact that the Minister has at command the parliamentary draftsmen and lots of people with double firsts and ex-Wykehamists in his Department, the best he can come up with after careful consideration since Second Reading on 28 October are amendments that would delete the Bill clause by clause. Like the Cheshire cat, it would gradually disappear, leaving only a smile at the end.
That is entirely symptomatic of the Government’s attitude to pensions reform. They are like a rabbit caught in the headlights: they do not know what to do and they do not want anyone else to do anything either. My right hon. and learned Friend’s proposals are a sensible way of addressing several of the major problems in pensions today.
The Government—particularly the Treasury—have set out from the beginning not only to block reform but to undermine and rubbish the results of the Turner commission, which took three years and £1.6 million to produce an excellent, thorough and well-reasoned report. I am not saying that we will sign up to every paragraph of it, but much of it is common sense if only for the reason that much of it represents what was in the Conservative party manifesto at the last election.
The Treasury has gone out of its way to demolish the findings of the Turner commission by leaking its proposals in advance and by leaking a letter to Lord Turner about the uprating of pension credit. Yet again, we see that the Treasury, particularly in the shape of the Chancellor, is the true roadblock to reform.
The Bill is all about boosting savings. We have seen a halving of savings since 1997, and the Bill would do a great deal to restore the position. I am amazed that the Government seek to sabotage the Bill and even more amazed that they have no concrete proposals to put in its place. I would have enormous respect for the Department and the Minister if they had tabled reasoned details amendments to improve the Bill. All they seek to do is demolish it. That is very sad, and the official Opposition’s attitude is that the Bill deserves a fair wind, deserves to go through Committee and deserves to return to the House.

David Laws: It is a pleasure, Mr. Benton, to serve under your chairmanship again. I congratulate the right hon. and learned Member for Kensington and Chelsea on introducing his Bill, which, as we said on the Floor of the House, has a number of useful components.
Clearly, the Minister felt a little guilty about the Government’s approach to the Bill because he had obviously sent someone off to do some homework and establish what precedents there were for deleting an entire Bill clause by clause. He did rather have to scrape the bottom of the barrel by going back to 1919. He seemed to be going back so far that he might eventually hit a Liberal Government, but stopped just short of that.
Perhaps we should not be too ungenerous because by deleting the Bill clause by clause, we presumably end up with a blank piece of paper, which would align the Bill with Government pension policy—at least we have consistency. To be a little more constructive and generous, I ought to say that it is perhaps not a surprise that the Minister has taken such a position, given that we understand the Department for Work and Pensions is seeking to decide how to respond in a coherent way to the Turner commission report. We await with interest the conclusion of the Government discussions to discover whether consensus will be reached, which we have all sought, with the Treasury. The Treasury seems to be, in the current Conservative parlance, the roadblock to what are widely considered to be desirable reforms.
I hope that the Minister’s recent courageous comments, indicating that the Turner report should be taken forward, the comments in the Daily Mirror article by the Prime Minister and the statements by the Secretary of State for Work and Pensions are all signs that Downing street and the Department are going to get together to rescue from the clutches of the Treasury a pensions policy in which a fairy godmother is required each Budget to hand out odd items of additional expenditure for which we are all supposed to be grateful to the Chancellor. That is not a sustainable basis on which to run our pensions policy in future.
Even if the Minister uses the ranks of supporting Labour Members to delete the items in the Bill, we hope that he will at least indicate which parts of the Bill  are valuable, which are not and which he intends to take forward into the White Paper or Green Paper, or whatever it will be, in the spring, summer, autumn, or whenever it will be, so that some of the good elements of the right hon. and learned Gentleman’s Bill are not lost.
On 28 October we expressed our view on the proposals in the Bill and welcomed two of the key proposals. We expressed some concern about the first area of the savings and retirement account, some of the practical elements of how that would work and the issue of pension tax relief. I shall not detain the Committee by reading out my previous speech.
If the Minister will not be as constructive today as he was on 28 October, I hope that he will at least provide some signposts for how the Government intend to take policy forward.

Justine Greening: I record my dismay at the Government’s amendments. When we debated this Private Member’s Bill several weeks ago, I thought that although it was not the whole answer to this country’s pensions and savings issues, it was part of the answer. Listening to the Minister on that day, I very much hoped that his enthusiasm would be reflected in Committee this afternoon. I am surprised and disappointed that it is not.
I am sceptical about Government plans to bring forward pension reform, because we on the Select Committee on Work and Pensions have been given assurances about when reforms to incapacity benefit would come through, but they seem to have been delayed and delayed. From my reading the papers yesterday, it looks as if those reforms have been watered down.
Perhaps we can leave this room at least reassured by the Minister about exactly when the pensions White Paper will come through and whether it will contain specific measures to help support the savings culture that has been fundamentally dismantled during recent years. This Private Member’s Bill sought to address that issue, and I hope that the Minister can provide me with some reassurance about it.

Stephen Timms: Let me welcome the fact that you are in charge of our proceedings this afternoon, Mr. Benton. I look forward to our debate under your chairmanship.
In response to the points made by Opposition Members, the position that I am taking this afternoon and the amendments tabled in my name are entirely consistent with what I said on Second Reading. I said that I was sympathetic to the objectives of the right hon. and learned Member for Kensington and Chelsea and share some of the aims that he set out on that occasion, but that we should not support the approach that the Bill takes and should continue to oppose it in Committee. Not only am I following in the tradition of my predecessors who responded to Sir Frederick Banbury and Mr. Bevins, I am being consistent with what I said on Second Reading.
I welcome the debate and the opportunity to consider in more detail the proposals that we analysed on Second Reading. I want us to have a constructive  debate; it will be useful in the context of the work taking place on pension reform. However, it would not be right for the Bill to proceed to the statute book.
It is only two weeks since we received the report of the Pensions Commission. It is a substantial document, and I agree with Opposition Members about the quality of the commission’s work. It is an impressive document, not least because it is a unanimous report from a former director general of the CBI, a former president of the TUC and a distinguished academic. We have made it clear—Opposition Members also made this point this afternoon—that we will examine carefully its recommendations in the period ahead, thus continuing the national pensions debate that we started earlier this year. At this stage, we have ruled nothing in and nothing out, and will continue to welcome proposals from everybody with an interest in the future of our pensions system. That is at the heart of the difficulty facing the Committee this afternoon.
Among its other major proposals, the report proposes a new pensions vehicle—the national pensions savings scheme—that would have much lower charging than most personal and stakeholder pensions have. It would certainly look very different to stakeholder pensions and the vehicles, or accounts, proposed in the clause. In the past few weeks, some interesting alternatives to the NPSS have been proposed. At the savers summit of the Association of British Insurers last week, I challenged the association to come forward with details of its alternative by the beginning of February. I suspect that that will look rather more like the accounts described in the Bill than the NPSS model. Other proposals might well be made. At this stage, the Committee simply does not have the information that it needs to decide whether we need the vehicle proposed in the Bill, the NPSS or something else. It will be another few months before the information needed to make that judgment is available.
A particular issue on which I should like to hear the reflections of the right hon. and learned Member for Kensington and Chelsea is that of the charge cap, because an important concern of the Turner report is that the cost of saving for a pension should be less than it currently is with stakeholder and other personal pension models. A power similar to one proposed in the Bill is used in stakeholder pension provisions to cap the proportion of a member’s funds that may be used to pay for the administration and management of the fund. The cap was originally set at 1 per cent. of the individual’s fund per annum; it was recently amended—for new members from April this year—to 1.5 per cent. a year for the first 10 years of membership, thereafter reverting to 1 per cent. Does the right hon. and learned Gentleman envisage such a charge cap for these accounts? If so, what are his thoughts on what it might be?

Malcolm Rifkind: In a sense, I am very relaxed on whether there should be a formal cap. The reality is that a scheme of the type proposed in the Bill would carry far less cost than has been the case in the past. The cost would probably be comparable to that with  an ISA because of the multiplicity of people who would be able to offer potential savers participation in such a scheme. The Minister will be aware that the problem with stakeholder pensions, for example, has been that life offices in similar institutions have primarily had the monopoly on provision, so they have not been worth people’s while and people have not been attracted by them. In contrast, ISAs are offered by a far broader spectrum of people in the financial sector. That has made them more competitive and has pushed costs down in a very acceptable way.

Stephen Timms: I am grateful for that answer but do not share the right hon. and learned Gentleman’s confidence, because the introduction of the stakeholder pension charge cap significantly reduced charging for personal pensions across the board. They fell by about a third between 1999 and 2001 following the requirement that an adviser recommending a personal pension should explain in writing to the customer why the pension recommended is at least as suitable as a stakeholder pension.
Of course, the account that the right hon. and learned Gentleman proposes is significantly more complex, in management terms, than a stakeholder pension because it allows people to take out and borrow some savings in the account for specified purposes. I do not say that one should, on that basis, argue against the flexibility for which he argues. Indeed, that is one of the more interesting features of his proposal. However, I suggest that if it were to go forward, its cost might well be somewhat higher than those of products that are currently available. That would be a move in the opposite direction to the one that the Turner commission recommends.
There are several other points that one could make, but I shall say no more at this stage, other than to welcome the fact that the right hon. and learned Gentleman has done the House a service in advancing a new idea that gives us something else to have on the table as we debate the matter in the next few months. For the reasons that I gave, it would not be right to proceed with that idea at this stage, but it is an interesting proposition, and I welcome the fact that it has been brought before the House.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 6, Noes 5.

NOES

Question accordingly agreed to.

Clause 1 ordered to stand part of the Bill.

Clause 2 - Registration of SaRA schemes

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Today has been a small step for mankind and great leap forward for the Bill. It is an historic occasion, which I hope will be recorded in the annals of infamy: the Government’s attempt for only the third time in 100 years to deny the House the right to debate the Bill on Report has crashed to failure. They could not even persuade their own Members to support their position on such an important matter. I trust that the Minister will not require us to go through this charade in our consideration of the rest of the Bill but will acknowledge that he must respect the will of the Committee and the House.
Clause 2 provides that the schemes are regulated by the pensions regulator, although it is hoped that a wider range of providers than the life offices that currently offer pension schemes will offer savings and retirement accounts. The authority in subsection (1) is, of course, the pensions regulator, and subsection (3) permits the regulator to refuse to register a scheme, or to remove a scheme from the register if it does not fulfil the conditions set out in clause 1.

Stephen Timms: On the point about the historic character of what is going on, it is true, so far as I am aware, that there have been only two precedents in which the Government succeeded in deleting all the clauses of a private Member’s Bill. What we do not know, of course, is how many attempts the Government have made to do that in the past 100 years. I suspect that that number is rather larger.
I suggest to my hon. Friends that, consistent with the view that I have expressed to the Committee, we should also resist clause 2, although it certainly is a fairly natural consequence of clause 1. Has the right hon. and learned Member for Kensington and Chelsea given any thought to the extent of the additional costs that might be involved in registering the accounts, given the risk-based approach that the regulator takes? I would be interested if he has any comments on that, but I urge my hon. Friends to resist clause 2.

Malcolm Rifkind: I do not believe that there would be any significant additional cost. There is similar provision. As the Minister knows, the clauses are largely based on the stakeholder legislation. I do not think that cost has ever been used as an argument against that legislation, and I see no reason why it should be used against this proposal.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 6, Noes 5.

NOES

Question accordingly agreed to.

Clause 2 ordered to stand part of the Bill.

Clause 3 - Duty of employers to facilitate access to SaRA schemes

Malcolm Rifkind: I beg to move amendment No. 20, in page 4, line 25, at end insert
‘, employing at least five employees’.
A certain pattern is emerging in this Committee, which may or may not continue. Time will tell. The amendment aims to ensure that the Bill conforms with what the House wished on Second Reading and what I originally intended. As the Committee is aware, the stakeholder provisions do not apply to any employer who has five or fewer employees, so that it does not put unreasonable and unfair burdens on small businesses. I understood that that was reflected in the wording of the Bill on Second Reading. On further consideration, we have concluded that the amendment is required to make it clear and beyond any misunderstanding.
The amendment is also highly relevant at this time because one of the most important recommendations of the Turner report is that its proposed savings scheme would not have a cut-off point if the proposal was endorsed. It is intended that all employees, regardless of the size of the business and even down to the smallest businesses that employ one or two people, will have an obligation to offer such a saving scheme. We feel that that is an unfair and unreasonable burden, and that is also the view of the Federation of Small Businesses, the CBI and others who have commented on such matters. It is important to make it clear that we have to get the balance right. For a corner shop, a garage, or some very small business, such a scheme would represent a significant administrative burden and potentially a financial burden if employers were expected to make contributions as well. I hope that the amendment will have the approval of the Committee.

Nigel Waterson: The official Opposition support the amendment entirely. The Conservative party is nothing if not the party of small business, and we can understand any legitimate concerns about not having a cut off that reflects, as my right hon. and learned Friend said, the existing cut off for stakeholder pensions. We agree that there is an unresolved issue in the Turner report about not excluding smaller firms. I appreciate that commission members have concerns about avoidance and so on that the Government will need to address in due course. There is a good  argument for a cut off and adopting that which exists for stakeholder pensions seems entirely sensible and has our full support.

Stephen Timms: I welcome and am interested in the fact that the right hon. and learned Gentleman has moved amendment No. 20. My impression on Second Reading was that he was resistant to that change, but he has clarified that position. The amendment helps to draw attention to a difficulty. We all acknowledge that people who work for small businesses and those who are self-employed have disproportionate pension provision. I welcome the amendment because it is easing a burden on small businesses, a point that I made on Second Reading. However, it does not help us to incorporate into pension provision many of the large number of people who currently do not have access to it.

Malcolm Rifkind: If that has become a persuasive argument for the Minister, why does he not apply the amendment to stakeholder pensions?

Stephen Timms: If the right hon. and learned Gentleman allows me to finish my argument, he will understand my position.
The Turner commission, in recommending a model that is rather different from a stakeholder model, has decided on a different proposal on that front. The commission argues, with some conviction, that the model it proposes would provide a significantly lower burden than the stakeholder model. In weighing up the alternative attractions—the national pensions saving scheme, something that looks more like a stakeholder pension, or some other proposition—a good deal of attention must be paid to the impact on people who work for small businesses.
The hon. Member for Eastbourne (Mr. Waterson) rather fancifully characterised his party as the party of small business. We must represent the interests of those people who work for small businesses. The fact that such a large number of them have no private pension provision at present is a significant weakness that must form part of this debate. I am sure that clause 3 is a sensible provision, but we shall need to look more at it as the debate proceeds, because we face a wider challenge with pensions. This is an interesting subject.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Malcolm Rifkind: Clause 3 places requirements on employers to provide access to SaRA schemes. The Bill obliges employers to designate the scheme, to supply their employees with the name and address of the designated scheme and to allow representatives of the scheme reasonable access to their employees.
The clause is consequential on matters with which the Committee has already dealt. I commend it to the Committee.

Question put, That the clause, as amended, stand part of the Bill:—

The Committee divided: Ayes 5, Noes 5.

NOES

Joe Benton: In accordance with House protocol, I cast my vote with the Ayes to keep the debate going and the Bill intact.

Question accordingly agreed to.

Clause 3, as amended, ordered to stand part of the Bill.

Clause 4 - Investment requirements for SaRA schemes

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: On what is otherwise a day of infamy, your position stands out as a beacon of parliamentary principle, Mr. Benton, which will be commended no doubt for the next 100 years.
The clause sets out the investment requirements for savings and retirement schemes. It is mainly an enabling clause. Subsection (2) provides that an account can be made up of investments set out in regulations by the Treasury. They are not specified under the Bill, but it is intended that the investments be similar to individual savings accounts, including cash, stocks, bonds and collective investments. I hope that the clause commends itself to the Committee.

Stephen Timms: I have just one question. I found it a little surprising that the Bill proposed that the approval of an account manager should be given to the pensions regulator. I should have thought that the Financial Services Authority would have been more appropriate. Why was the pensions regulator, in particular, proposed?

Malcolm Rifkind: I do not have strong views about the matter. If the Minister tables an amendment to that effect on Report, I assure him that I shall  respond to it in a constructive fashion. We would have had time to look into the respective merits of the two approaches.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 6, Noes 5.

NOES

Question accordingly agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5 - Drawdown requirements for SaRA schemes

John Penrose: I beg to move amendment No. 24, in page 6, line 9, after ‘child’, insert ‘or grandchild’.

Joe Benton: With this it will be convenient to discuss the following amendments: No. 23, in page 6, line 15, after ‘of’, insert ‘accredited’.
No. 25, in page 6, line 28, at end insert—
“‘grandchild” means—
(a)a grandson or granddaughter of the account investor, or
(b)a person in respect of whom the account investor’s child had parental responsibility when that person reached the age of 16;’.

John Penrose: The amendments are technical and designed mainly to extend the purpose of this part of the Bill. Clause 5(6) specifies three or four different ways in which drawdown can take place early from a SaRA. Subsection (6)(b) specifies that an account holder can allow drawdown to provide financial assistance to a child
“in making his first house purchase for his occupation as his principal residence”.
 Under amendments Nos. 24 and 25, the provision would be extended to include grandchildren, the purpose clearly being, first, that the provision was still within the family and, secondly, because it would be more likely that grandparents will have amassed a sufficiently large pot of funds in their SaRA to afford to help out another family member, whereas those at an earlier stage of life—perhaps in their 30s and 40s—might find that a little hard.
Amendment No. 23 would amend subsection (6)(c), which is designed to allow drawdown from a SaRA when someone is about to undertake a course of higher or further education. It would add “accredited”  because a number of courses offered by further education colleges are not fully accredited. Many are commonly known as leisure and pleasure courses.
It might not be appropriate to allow a drawdown from a retirement fund for a course on something comparatively simple such as flower arranging; one should try to arrange for something that carries a formal qualification. The amendment would ensure that it is done for sober and serious purposes rather than for less serious ones.

Malcolm Rifkind: I am extremely grateful to my hon. Friend for moving the amendment. I indicated on Second Reading that the drawdown examples given in the Bill could be added to or subtracted from. First, there is the basic principle that a drawdown facility would encourage younger savers, particularly those in their 20s and 30s, who will not want to lock up funds for 30 or 40 years; by investing in such an account they would not cut off access to those funds if they were needed to cope with some of the fundamental decisions that might affect them and their families.
The proposal is based on a scheme that operates in Canada; it covers the same two categories. I have said that if the Committee or the House wishes to broaden the opportunities for drawdown, I would have no objection in principle. I would be happy to acquiesce in what my hon. Friend proposes.

Stephen Timms: Subsection (6) proposes three quite different purposes for which drawdown would be permitted. The first and third of them are interesting. The first is the purpose of
“providing financial assistance to the account investor in making his first house purchase”.
The Government are committed to extending the extent of home ownership. I can also see a case for the third, particularly with the addition of the word “accredited” as suggested by the hon. Member for Weston-super-Mare (John Penrose). However, the second purpose sits rather oddly—the purpose of assisting a child to make
“the child’s first house purchase for his occupation as his principal residence.”
We need to be clear in our minds about the purpose of the substantial tax advantages that would be conferred on people saving for a pension. Why are those substantial tax benefits provided? It would be difficult to argue plausibly that it was right for the generous tax advantages of pension saving to be extended to providing access to funds to a child, let alone a grandchild, to buy a first house. Indeed, if we were to extend them to grandchildren, why not other people?
I am interested in purposes (a) and (c), but purpose (b) is much harder to justify, especially if it is to be amended as suggested by the hon. Gentleman.

John Penrose: It is my understanding of the clause that if money is drawn down from a SaRA but is not repaid within a certain period—the time specified in the Bill—the tax advantages would be lost. If money that is drawn down for a child or grandchild to assist  them in buying a house is not repaid, the tax advantages would vanish, and the Minister’s point becomes less important.

Stephen Timms: It remains very important, because that framework would encourage people to save for retirement. That is the purpose of the vehicle; it has extra flexibility to encourage people to save. However, the purposes need to be tightly defined. I presume that the reason for the three purposes is that the Government already use the tax system to encourage people to save for such purposes. Although it is true that the tax benefits would be lost if the loan was not repaid in a particular time, it is still a tax advantage saving vehicle for these purposes. I suggest that it is very difficult to argue that the tax advantage character of that vehicle should be available for the purpose in paragraph (b) unamended, let alone amended.

Amendment agreed to.

Amendments made: No. 23, in page 6, line 15, after ‘of’, insert ‘accredited’.
No. 25, in page 6, line 28, at end insert—
“‘grandchild” means—
(a)a grandson or granddaughter of the account investor, or
(b)a person in respect of whom the account investor’s child had parental responsibility when that person reached the age of 16;’.—[John Penrose.]

Question proposed, That the clause, as amended, stand part of the Bill.

Malcolm Rifkind: As we have discussed, clause 5 deals with the question of drawdown. It provides that cash up to a specified maximum amount may be withdrawn before retirement for limited specified purposes. There are, however, two main restrictions on the amount that may be withdrawn.
First, a maximum of 60 per cent. of the value of an account at the time of drawdown may be withdrawn. That is designed to prevent funds gained through tax relief from being withdrawn.
Secondly, a maximum of £40,000 may be withdrawn. That amount was chosen to allow sufficient funds to be withdrawn to cover a house deposit or a long-term course of education, but no more. We have considered the sum that would be required, given house prices in various parts of the United Kingdom and the amount would meet that particular need.
Subsection (4) allows for the repayment to be made within a specified time, which it is anticipated should be no later than retirement. It does, however, make provision that that repayment need not be made for four years to allow for any withdrawal that was due to the provisions on education.
Subsection (5) allows for tax relief to be withdrawn from the fund, equivalent to the tax relief given on the money not repaid after drawdown. The particular purposes for which it can be drawn down are either assistance to the investor in making a property purchase that will be his or her principal residence, to allow the account investor to provide financial assistance to his or her child’s first property purchase, which, in the light of the amendment tabled by my hon.  Friend the Member for Weston-super-Mare, also applies to a grandchild, or to fund a prescribed apprenticeship or further or higher education course at a publicly funded institution.
I believe that the proposals work very well in north America and are seen to be a very attractive and successful way of encouraging new funds to be made available in saving schemes. They do not cost the Exchequer anything, because the tax relief is withdrawn if repayment is not made. There is therefore no loss to the Revenue, but people, particularly in their younger years, have every incentive to consider contributing towards a scheme of this sort, and I commend it to the Committee.

Nigel Waterson: I express the Official Opposition’s support for the provision. Obviously in an ideal world, people would do the traditional thing of locking away their pensions contributions for 40 years, which would be great. We know, however, that savings in this country have halved since 1997 and that many young people are turned off the idea of locking away their contributions. As my right hon. and learned Friend said, there is ample evidence from north America, witnessed particularly by the success of the 401K schemes, that a limited series of drawdowns can be permitted within very tightly defined constraints.
I am the first to say that there is scope for legitimate debate about the way in which such drawdowns would work and the categories that apply. I am only sad that the Government have not chosen to engage in that debate, but are seeking yet again to scrap the whole clause.
The Official Opposition broadly support the contents of the clause, which we believe would do an enormous amount to encourage particularly younger workers to get back into the savings habit for their retirement.

Stephen Timms: I welcome engagement in the debate. The evidence from the US on this issue is interesting. I wonder, though, whether the hon. Gentleman has seen the research from the ABI on 401Ks. In the US, 401Ks allow decumulation at the end of every period of employment. The ABI concludes:
“The fact that only a fifth of those in the USA who opt to unlock their pension fund on changing jobs plan to roll their pension savings into a new pension suggests that there are real risks in abandoning the UK’s approach of preventing decumulation until 50 years of age”.
The ABI makes an important point that must be weighed in the debate.
It is true, of course, that money withdrawn would need to be repaid in order to retain the tax privilege position, but there is no requirement for the account holder to make new payments into the account on top of the repayments. Therefore, money withdrawn may be replaced, but money may not be added. There is a question about whether we would, in fact, find that pensions had been reduced rather than increased.
A major practical difficulty is the complexity and possible cost of administering such a scheme. When arrangements have matured in a SaRA, one could have money going in as new savings, money being withdrawn and money being paid in as repayment of  one or more previous withdrawals, all at the same time. That would be extraordinarily complex for account holders, account managers, employers who might be making payroll deductions and Her Majesty’s Revenue and Customs, who would have to keep track of the tax position if withdrawals had been made. I suppose that everybody would be required to work out the tax on their self-assessment form, but that would be complex—too complex to be practical, I suspect.
As was pointed out on Second Reading, the sum of £40,000 is beyond the realms of possibility for many people. The things that they might wish to save for, in addition to a pension, will often be more modest than buying a house, which is one of the purposes proposed in subsection (6). The Bill could leave people who have an outstanding and immediate unforeseen debt unable to access their funds in order to clear it, although they could access the funds to buy a house. The rationale for that is difficult to grasp.
There is a discussion to be had about the role of greater flexibility, but the form proposed in the Bill raises at least as many questions as it answers, and I urge my hon. Friends to resist the clause.

Question put, That clause 5, as amended, stand part of the Bill:—

The Committee divided: Ayes 6, Noes 5.

NOES

Question accordingly agreed to.

Clause 5, as amended, ordered to stand part of the Bill.

Clause 6 - Application of Employment Rights Act 1996

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Clause 6 is one of the miscellaneous and consequential clauses applying the Employment Rights Act 1996 to the legislation. It is entirely consequential on what has already been approved by the Committee, and I commend it to the Committee.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Clause 7 - Application of 1993, 1995 and 2004 acts to SaRa schemes

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: I am glad that the Committee has moved into a new phase in which even the Government agree to and do not oppose clauses. I am grateful to the Minister for that, but I do not draw any conclusions from it.
Similarly to clause 6, clause 7 is a consequential miscellaneous provision with regard to the application of the Pension Schemes Act 1993, Pensions Act 1995 and the Pensions Act 2004 to saving and retirement account schemes. I commend it to the Committee.

Question put and agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8 - Interpretation and application of part 1

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Clause 8 is purely the interpretation and application clause, and I commend it to the Committee.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Clause 9 - Retirement income funds

John Penrose: I beg to move amendment No. 21, in page 9, line 11, after ‘an’, insert ‘annual’.

Joe Benton: With this it will be convenient to discuss amendment No. 22, in page 9, line 38, at end insert—
‘(9A)The ninth condition is that each member’s life expectancy is re-assessed at an interval not exceeding twelve months.’.

John Penrose: The amendments seek to alter the Bill with one important change. The Bill states that
“an authorised Retirement Income Fund provider must set an annual maximum withdrawal allowance for each member, based on an assessment of each member’s life expectancy, and a member’s withdrawals from the fund in any one year must not exceed that allowance.”
If, having set up a retirement income fund, someone is diagnosed with a serious illness and their life expectancy dramatically shortens, it is in their interest and that of public policy to increase the maximum amount they are allowed to withdraw.
The amendments seek to allow for the maximum amount to be regularly reassessed in line with their shortened life expectancy, so that they are not short-changed by the bureaucracy.

Malcolm Rifkind: My hon. Friend’s amendment is not only practical but humanitarian. It would be sensible to be able to respond to the special circumstances to which he referred, so I am happy to accept his amendment.

Amendment agreed to.

Amendment made: No. 22, in page 9, line 38, at end insert—
‘(9A)The ninth condition is that each member’s life expectancy is re-assessed at an interval not exceeding twelve months.’. —[John Penrose.]

John Penrose: I beg to move amendment No. 26, in page 9, line 38, at end insert—
‘(9B)A SaRA may be converted into a Retirement Income Fund at the account holder’s sole discretion, providing that he is either—
(a)over the age of 60, or
(b)in receipt of Incapacity Benefit, Disability Living Allowance or their successors.’.

Joe Benton: With this it will be convenient to discuss amendment No. 27, in page 9, line 38, at end insert—
‘(9C)Section 109(1)(b) of the Employment Rights Act 1996 (c. 18) shall not apply to the holder of a SaRA.’.

John Penrose: The amendments are motivated mainly by the recently published Turner report. They seek to allow people to specify the time at which they wish to begin their retirement. At any point after 60, someone should be able to say that they wish to convert their SaRA into a retirement income fund. Importantly, however, that date should not be specified. They may wish to convert at 61, 71 or, indeed, 81, depending on their personal circumstances.
There seems to be unanimity throughout the House about allowing people to choose their own date of retirement and to choose a later date if they want to. If someone chooses to retire at 71, it is in everybody’s interests to allow them to continue working until 71. Under age discrimination laws, companies can fire somebody without any come back when they reach 65. The amendments seek to remove that exemption, so if someone has not opted to retire or had not converted their SaRA to a retirement income fund, they could not be fired by their employer simply on grounds of age.

Malcolm Rifkind: Yet again, my hon. Friend has put forward some changes to the Bill which, at first inspection, seem to benefit the way in which the retirement income fund would operate. Between now and Report, we shall have time to consider the wider implications and, if necessary, table any further amendments.

Amendment agreed to.

Amendment made: No. 27, in page 9, line 38, at end insert—
‘(9C)Section 109(1)(b) of the Employment Rights Act 1996 (c. 18) shall not apply to the holder of a SaRA.’.—[John Penrose.]

Question proposed, That the clause, as amended, stand part of the Bill.

Malcolm Rifkind: The clause is the first of part 2 and relates to the proposed retirement income funds. The provision is a response to remarks made about previous private Members’ Bills and previous attempts to remove the compulsory annuitisation provisions.
In the past, the Government have made their objections clear, and we have sought to endorse at least one aspect of their concerns. The concern expressed has been that in trying to meet the wishes and to provide flexibility for those who do not wish to take out annuities up to the age of 75, we might be introducing new obligations for the higher number of people who have happily taken annuities and are likely to be willing to wish to continue to do so over the years to come. It is no part of the Bill’s purpose to impose obligations on anyone. We seek maximum flexibility, and the retirement income fund is a way of meeting that need.
The provision once again draws on north American experience. That is important, because when introducing a new provision in a complex area, it is reassuring to know that the proposal has worked satisfactorily for a good number of years in another western, highly developed country with a developed pension structure. The Committee can be confident that the proposals would meet the need.
Clause 9 would amend the Finance Act 2004 to allow the creation of retirement income funds. They could be operated only by or on behalf of the person authorised to operate a registered pension scheme, and only investments approved by the Inland Revenue could be made by such a fund. It would have to meet certain conditions. The funds held should be invested and withdrawn when the scheme member so requests, and an authorised provider must set an annual maximum and minimum withdrawal allowance for each member, based on an assessment of each member’s life expectancy. A member’s withdrawals from the fund in any one year should not exceed that maximum allowance.
Other additional conditions have been included to prevent someone who has a fund from falling back on means-tested benefits at any point in the future, which has been one of the Government’s prime concerns in recent times. The annual maximum withdrawal allowance must be set so that no member’s total future income falls below the minimum retirement income level and so that each person’s total income is at least equivalent to the MRI. If a member chooses not declare his total annual income, he must withdraw funds equivalent to the MRI level or his annual minimum withdrawal allowance, whichever is lower.
Finally, additional conditions provide for situations in which individuals have small retirement income funds, which means that they will need to claim means-tested benefits in the future if they live as long as expected. It should be noted that some people with small annuities can also find themselves in need of means-tested benefits, either when there are insufficient funds to enable the annual minimum withdrawal allowance to be set so that a member’s total income is at least equivalent to the MRI level, in which case the allowance should be set at the highest  level consistent with the member’s assessed life expectancy, or if a member’s total annual income, including his maximum withdrawal allowance, is lower than the MRI level, in which case the maximum and minimum level allowances must be identical.
The provisions meet the Government’s concern about avoiding any unnecessary dependence on state benefits. In response to a point made by the Minister on Second Reading, I emphasise that he cannot argue that the existing compulsory annuitisation always prevents dependency on benefits. There are circumstances in which, even with an annuity, some benefits are required and persons entitled to them. In the same way, that would be the consequence of these proposals. However, they would provide the flexibility that is an important objective.
I hope that the Minister, who is part of a Government who have consistently opposed such measures, will take account of the Turner commission’s views on this important area. The commission has recommended first that the age for first possible and last possible annuitisation should rise over time in line with life expectancy. In other words, the Government should not be committed to the 75-year requirement. Turner also urges a review of the case for a cash limit on the amount that individuals are required to annuitise at any age, so that a wider market for drawdown products can develop.
Turner is, I think, recognising that the Government’s position is increasingly unsustainable. The clause is a constructive way of providing an alternative, and I commend it to the Committee.

Nigel Waterson: We entirely support the proposals, which are very much in line with—indeed, a refinement of—provisions in a series of private Members’ Bills presented by Conservative Back Benchers. They are a recognition that, in this day and age, there is a feeling that compulsory annuitisation, up to the age of 75, is outdated and unfair, and often brings very limited returns. We are almost the only developed country where it is still a legal requirement.
With all the conditions that my right hon. and learned Friend has explained in detail about ensuring that the Treasury will not be losers the clause seems to us to be the way forward. I believe that the Government see that, because they try constantly by spin to show that that their alternative secured pensions proposals achieve just the same. Of course, they do not. We need a clear, coherent proposal, like that in the clause, which sweeps away the obligation to annuitise at a certain age and gives people the flexibility that is so important. I hope that such a proposal will, in the longer run, play its part in encouraging people back into savings, which we badly need to do if we are to begin to deal with the pensions crisis.

Stephen Timms: I have just a couple of observations on the retirement income fund. It is another interesting idea and another reason for my welcoming our debate on the Bill, which is drawing, as the right hon. and  learned Member for Kensington and Chelsea said, on Canadian experience. However, a concern that I raised on Second Reading was the danger that people would run out of money late in their lives. In the debate I drew attention to the advice issued by the Canadian Bankers Association:
“If you take out too much, too soon, you may outlive your RIF and may be short of funds.”
The prospect of that happening to someone in their mid-90s with no dependants is very alarming, and we should create safeguards against it.
I think that the right hon. Gentleman suggested on Second Reading that the risk would be theoretical, but that is not so. In Canada, it is a significant risk. I have had the opportunity, since Second Reading, to read the interesting paper by Professor Milevsky of the Fields institute in Toronto, called “How to Completely Avoid Outliving Your Money”. He goes into the issue at some length and concludes that what we need are annuities. There are real difficulties about the idea, which require further thought, beyond the provisions in the Bill.
I should also point out that quite a few changes are being introduced, such as the change to the trivial commutation limit; the change in the rules on income withdrawal from A-day; the innovations of limited period annuities and value-protected annuities whose attractions Professor Milevsky particularly celebrates; and, alternatively, secured pensions, which the hon. Member for Eastbourne mentioned. The right hon. Gentleman’s idea is interesting, but involves some serious difficulties that require further thought.

Malcolm Rifkind: The Minister has put me at a disadvantage. I must confess that I am not familiar with the views of Professor Milevsky, and the Minister did not think to give me advance notice that that learned professor’s views would be almost the only argument that the Government could advance against the clause. The Minister has argued that some people might at a very elderly age run out of necessary funds. He is correct, of course, but that applies under the existing arrangements in the sense that even with an annuity, people might find themselves dependent on benefits because the annuity is very small. As the Minister knows, the vast majority of people will increasingly have several sources of income in their retirement. They will have some element of the state pension and an occupational or other pension, so they will not be entirely dependent on the retirement income fund in order to meet the minimum income guarantee.
My final point is that the fund is only an option available to people. No one will be required to go into a retirement income fund. If they wish to have an annuity, they will have the same rights as they do currently to continue doing so. On that basis, I commend the clause to the Committee.

Question put and agreed to.

Clause 9, as amended, ordered to stand part of the Bill.

Clause 10 - Amendment of the pension rules

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Clause 10 amends the Finance Act 2004 to allow retired people both prior to and after the age of 75 to take a retirement income fund as an alternative to an annuity. Unlike previous Conservative private Members’ Bills, it would mean that compulsory purchase at the age of 75 is not abolished. Instead, the Bill extends the choice of products available from solely annuities at this point. It also places no obligation on anyone to take up a retirement income fund or take the minimum retirement income from it. I commend the clause to the Committee.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

Clause 11 - Minimum retirement income

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Clause 11 sets out how the minimum retirement income will be calculated. The level will be determined annually by the Chancellor of the Exchequer by order, on or before 31 January. It will be set at the level of the minimum income guarantee as set out in the State Pension Credit Act 2002. That is the level at which basic pension credit becomes payable. I commend the clause to the Committee.

Question put and agreed to.

Clause 11 ordered to stand part of the Bill.

Clause 12 - Removal of age limit for annuity protection lump sum death benefit

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Clause 12 specifically addresses the iniquity of the age limit rule in capital protection of annuities. One of the principal criticisms people have made of conventional annuities is that in the event of the annuitant’s death, the remaining capital from the pension fund is lost. From April 2006, value-protected annuities will be available, which enable the return of annuitants’ original capital minus the annuity payments received and minus a tax charge when they die. However, the rules state that the annuitant has to die before reaching the age of 75 in order to receive a return of capital. That is clearly a totally arbitrary approach.
The Association of British Insurers has found that 47 per cent. of annuitants would be interested in the option of a value-protected annuity and would be willing to give up a reasonable amount of income for one. In fact, a fifth of those whom the ABI surveyed were prepared to give up to 20 per cent. of their annuity income in order to be able to pass on something after their death. I have referred to the conclusion of the Turner report that the age of 75 has become rather an arbitrary one that should not be insisted upon by the Government, and I commend the clause to the Committee.

Question put and agreed to.

Clause 12 ordered to stand part of the Bill.

Clause 13 - Duty of employers to facilitate access to personal pension schemes

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: The clause is in part 3, which is the final substantive part of the Bill. It is intended to address the worrying trend of pension proliferation, whereby many savers have large numbers of often very small private pensions. That situation is caused by changes of circumstances, such as new jobs or, in the case of women, career breaks. It is important to deal with that. Stakeholder pensions have made some progress in that sphere, but only by allowing transfers to other stakeholder pensions. The clause places an obligation on those employers who have to designate a stakeholder pension to offer payroll deduction for contributions into any stakeholder or other personal pension scheme, and it is intended that that should also apply to savings and retirement accounts. I commend the clause to the Committee.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.

Clause 14 - Consequential amendments and repeals

Question proposed, That the clause stand part of the Bill.

Malcolm Rifkind: Such is the Government’s enthusiasm for the Bill in the latter part of the Committee that I am having difficulty keeping up with the clauses that we are considering. I commend this one to the Committee.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.

Clauses 15 to 17 ordered to stand part of the Bill.

Schedules 1 and 2 agreed to.

Question proposed, That the Chairman do report the Bill, as amended, to the House.

Malcolm Rifkind: Partly due to your excellent chairmanship, Mr. Benton, partly due to the inherent merits of the Bill, and partly due to the late conversion of the Minister to those merits, we have not only been able to approval all the clauses, but have done so in exemplary time, which may indicate that we are moving rapidly towards the great national consensus that the Minister was seeking. Some are born with consensus, some achieve it and others have it thrust upon them. The Minister appears to be an example of the third category as far as today’s proceedings are concerned. I suspect that he did not entirely anticipate that every clause would be approved by the Committee and that half of them would be approved with his  participation. It just goes to show the merit of mature debate in these matters. Even the Government, whom I have often felt the need to criticise, are not entirely unresponsive when the arguments are put in a clear and excellent fashion.
It is good that the Bill will go through to Report, although I can only speculate as to when that might happen and the Bill’s ultimate fate. However, I commend the Bill to the Committee.

Question put and agreed to.

Bill, as amended, to be reported.

Committee rose at Seven minutes to Four o’clock.